Tamilnadu Samacheer Kalvi 12th Commerce Notes Chapter 6 Money Market Notes
→ Money Market is a market for purely short-term funds.
→ It is the segment of financial markets where in financial instruments having maturities of less than one year are traded.
→ According to Crowther, ’’the money market is the collective name given to the various firms and institutions that deal in the various grades of near money”.
→ The RBI defines the money market as, “a market for short-term financial assets that are close substitutes for money facilitates the exchange of money for new financial claims in the primary market as also for financial claims, already issued, in the secondary market”.
→ A well-developed Money Market serves the following objectives:
1. Providing an equilibrium mechanism for ironing out short-term surplus and deficits.
2. Providing a focal point for Central Bank intervention for influencing liquidity in the company.
3. Providing access in uses to users of short-term money to meet their requirements at a reasonable price.
→ Generally, transactions take place through phone, i.e., oral communication. Relevant documents and written communications can be exchanged subsequently.
→ The components of a money market are the Central Bank, Commercial Banks, Non-Banking Financial Companies, Discount Houses and Acceptance House.
→ The Commercial Banks are the nerve centre of the whole money market. They serve as vital link between the Central Bank and the various segments of the money market.
→ There should be a large demand and supply of short-term funds.
→ The central bank keeps their cash reserves and provides them financial accommodation in difficulties by discounting their eligible securities.
→ A Treasury bill is nothing but a promissory note issued for a specified period stated therein. The Government promises to pay the specified amount mentioned therein to the bearer of the instrument on the due date.
→ The features of the Commercial Bills are- Drawer, Acceptor, Payee, Discounter, Endorser, Assessment, Maturity and Credit Rating.
→ The drawing and acceptance of indigenous bills are governed by native custom or usage of trade.
→ A market whereby the Government or gilt-edged securities can be bought and sold is called ‘Government Securities Market’.
→ Government securities are issued for the purposes of refunding the maturing securities, for advance refunding securities, which have not yet matured and for cash financing, i.e., raising fresh cash resources.